Alabama and CMS Near Resolution on State’s Use of Medicaid Loophole

During an April 10 meeting, Alabama and CMS officials moved closer to resolving a long-running dispute over the state's use of the Medicaid upper payment limit, commonly known as the Medicaid loophole, the Birmingham News reports. Although CMS at one point insisted that Alabama owed the federal government $290 million for improperly using the loophole, the agency has backed off that amount, according to state Medicaid Director Mike Lewis. State officials had said that paying such an amount would "decimate" services for Alabama's more than 700,000 Medicaid beneficiaries. Under the loophole, the state reimburses public hospitals and nurses for care provided to Medicaid beneficiaries at 150% of the Medicare rate, receives additional federal matching dollars for doing so and then requires the facilities to return the extra reimbursements. CMS' decision not to seek the full $290 million payment came after the state presented new data about care provided to Medicaid beneficiaries and indigent patients by the state's hospitals (Orndorff, Birmingham News, 4/11). The state has maintained that it spends all the additional funds it receives through the loophole on health care (Kaiser Daily Health Policy Report, 1/11). Dennis Smith, director of Medicaid and State Operations at CMS, said the new data "could be a huge part of the solution." But he indicated that the state still might have to repay some of the $290 million to settle the dispute.

Unresolved Issues
There still remains "major disagreement" over whether the state should have to change the way it uses the loophole at the end of this month (Birmingham News, 4/11). Alabama initially received federal permission to use the loophole in 1995, and since then CMS has extended the deadline for the state to phase out its use of the loophole. In late February, CMS officials agreed to extend by two months the time Alabama could use the loophole so long as state officials worked with the agency on the funding dispute. Last fall, HHS announced plans to close the loophole for 14 states, not including Alabama, and completely phase out the accounting technique by 2010 (Kaiser Daily Health Policy Report, 2/25). Alabama maintains that its Medicaid program will be severely impacted if it cannot continue to use the loophole. "It would be very difficult for us to do exactly what [CMS wants] us to do," Lewis said, adding, "We do feel like we're complying with all the laws, rules and regulations" (Birmingham News, 4/11). In January, Gov. Don Siegelman (D), Rep. Spencer Bachus (R) and Attorney General Bill Pryor (R) issued a public declaration stating that CMS Administrator Tom Scully holds a "personal vendetta" against the state, adding that he was "unfairly targeting Alabama" although "other states have more egregious systems" (Kaiser Daily Health Policy Report, 1/11). Siegelman indicated last week that a full compromise on the funding situation might be difficult to reach, and he urged Alabama's congressional delegation to protect the state's Medicaid program from "bureaucrats who are trying to steal the lifeblood from the health care benefits of more than 700,000 Alabamians." Smith countered that CMS is not targeting Alabama, noting that all states eventually will have to end their use of the loophole. "We treat Alabama even-handedly and fairly," he said (Birmingham News, 4/11).